Currency Trading Strategies: 3 Methods That Work

The key to success in Forex is finding currency trading strategies that work.

Currency Markets. Forex. FX.

The names themselves generate many emotions. Positive excitement. The feeling that “this is going to be a scam.” There seems to be little between.

Skepticism is often warranted and healthy. The Forex market has the greatest instance of fly-by-night brokers. This is due to minimal regulation in comparison to other asset classes. It also has the highest failure rate.

Failing is easy because it’s so easy to open an account. You only need a little money to start and no knowledge or experience.

Some are way too skeptical about Forex. Others are way too excited.

The good news is that those statistics have nothing to do with the fact that Forex methods that work do exist. Beliefs are strong and can outweigh facts. So if you believe the largest asset class in the world by a wide margin is a scam, there’s little help that I can offer.

But, if you’re still reading you’re still interested in investigating currency trading strategies. Here are 3 Forex methods that work.

Currency Trading Strategies – Method #1:

Technical indicators can vary as much as the number of trading symbols worldwide. And there’s an exponential increase with all the custom settings used. The answer to the question of what is good or bad relies on a Forex Trader’s personal preferences and choices.

Among those personal preferences and choices are:

time made available for trading

which currency pairs to trade

available capital

selected trading tools

desired style

considerations in the trader’s trading plan

There are plenty of resources outlining strategies and tactics for momentum-based strategies. I will avoid getting into an explanation of the relative merits, or lack thereof, of (12, 26, 9) MACD setting. Hint: there’s nothing special about those number.

What I will focus on is “the ugly,” and how to avoid it. Experienced traders abhor the lack of definition. They consider the lack of concise strategy to constitute poor trading. Others would not consider it is trading at all. They would label it gambling. It is what we call “the ugly”.

It’s ugly because that is what the long-term prospects are for someone without a precise strategy.

Avoid the “ugly”. If you don’t have a plan for your money, someone else does.

Here’s a momentum strategy that is very precise. There’s nothing special about this particular strategy. And I have not tested its effectiveness. I share it because it has the one essential characteristic of being precise.

Example Strategy:

Apply to a 5-minute chart of the EUR/USD pair.

Long Entry: When the 9-period simple moving average crosses above the 30-period simple moving average, go long at open of the next bar using a market order.

Long Exit: When the 9-period simple moving average crosses below the 30-period simple moving average, close the existing position at open of the next bar using a market order.

DO NOT SHORT THE PAIR

This strategy is precise. There is no interpretation or artistic license for the trader. If programmed into many computers, they would all come up with the same trades.

Effectiveness aside, it’s a start. Currency trading strategies that work still need validation. They also need sizing methods and to be part of a comprehensive trading plan.

But, as a strategy, it is “good” compared to a lot of other so-called-strategies out there. It warrants this preliminary praise because a trader can verify its effectiveness. That trait itself makes it a worthwhile strategy.

When looking for currency trading strategies that work, ensure clarity in your strategy. Evaluations of good and bad can come later in testing and deployment.

Keep things simple. For now, avoid the ugly. That’s a strategy with loose definitions and that lacks specificity. And of course, avoid what is worse than ugly – trading without any strategy at all.

Currency Trading Strategies – Method #2:

Japanese rice traders invented them centuries ago. Since then, candlestick charts have served traders well. Their current popularity as one of the most used chart types

How profitable are they in currency trading?

A straight answer is that candlestick strategies are as effective as any other. The caveat is that the trader must know effective methods to design and deploy the strategy.

It is vital to remember a simple fact. Candlesticks, indicators and even technical analysis itself are tools. They are tools used to aid strategies and to help traders profit.

“The ability of the Forex trader to carry out their own plans is critical.”

I love candlestick charts and strategies based on candlestick formations. The formations summarize lots about market sentiment. It’s sentiment that gets reflected in price action.

There are large variations in profitability depending on the candlestick strategy used. Timeframe, the Forex pairs traded, and position sizing matter as well. And of course, the ability of the Forex trader to carry out their own plans is critical.

Pro Tip:

Use candlestick formations in conjunction with other analytics. This will filter out weaker signals and boost your trading outcomes.

Currency Trading Strategies – Method #3:

It is no secret that I am a fan of Market Profile. That enthusiasm carries over to Market Profile in Forex trading as well. A significant advantage is that it shows areas where buyers and seller agree on price.

That’s where the trading transactions actually happened. Compare this to having to eyeball the price and volume chart and deduce it in your head.

Well highlighted areas of significant price levels is a key benefit. It’s a benefit that is not available in other types of analysis. This matters for a key reason. Market Profile is able to reveal price levels that offer support and resistance.

Knowing where the price has a high probability of reversing is an enormous advantage. And there’s another key benefit of using Market Profile in currency trading strategies. It’s incorporating the value zone.

This feature especially benefits Forex traders. Currency pairs are often range bound. Taking trades within that range can be quite profitable.

On the other side of that range trading strategy are the trend trading strategies. These too can use Market Profile analysis. The best trend trading that I have done is using TAS Market Profile analysis (read my full review here).

Market Profile works whether the Forex pair you trade is trending or in a sideways range. This opens up more trading opportunities for you.

Bringing It All Together

Many currency trading strategies work to generate handsome profits. Momentum, candlestick, and Market Profile based strategies are only a partial list. Forex traders who define a clear strategy will discover the biggest benefits.

Using elements of all three strategies discussed has potential merit as well. A word of caution – make sure not to over-complicate. Complexity is the enemy of the empowered trader.

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